Tell the taxman? But I’ll lose my benefits!

Losing your Benefits – the big fear

Losing your benefits is a big risk. What happens if you tell the Revenue that you’re going self-employed, and then it doesn’t work out?

As the table below shows, you can work up to 14 hours a week, and keep most of your housing benefit, but you’ll lose JSA.

Thereafter, the more hours you work, the more you lose in benefits.

But with the money coming in from self employment, money that takes the place of your benefits, you should end up better off.

When should I tell the tax man?

In theory you should always tell the tax man when you’re working.

But many people have an understandable fear that the new income will fade away. Once you come off benefits, there are delays in getting back on again.

Being on benefits is reassuring. And coming off them is hard.

Anyone who does a small amount of work while claiming is unlikely to be noticed by the tax man.

However, there comes a point when you’re getting income from self-employment. That is the point at which you should tell the taxman, because not doing so will put you at risk.

Your clients may unwittingly mention your name when they claim back expenses from the taxman. And a neighbour may decide to shop you.

Case study: Mark gives up Benefits

Mark is a 31 year old, who has become self employed, working as a writer. He was getting a sizable Housing Benefit payment because he had a big house, due to his having five children.

“I’d got to the point where I had an accountant. He was going through the numbers and asked me if I had any other income. I let it slip that I was getting benefits. He was shocked. He pointed out that I was getting quite a lot of income from self employment.

I left the meeting realising that the benefits were a source of income that I was used to relying on. Giving them up would be hard. What happened if my business started to fail? In the end I told the benefits people that I was starting up a job. They took me off benefits but gave me a weekly grant for a few months. I never looked back. But giving up was a wrench. It was like a comfort blanket.”

At what point are you better of working?

In the table below you can see what money Joe gets. He is a 33 year old single male who has no children, no savings, pays £450 a month rent, £58 a month Council Tax and his Local Housing Authority offers an £83 rent contribution. If working he earns £7 an hour.